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Trading on margin is one thing, but leverage is the only way to make significant money. That’s why people who traded options or even crypto made massive amounts
by mise_en_place 4y ago
Trading on margin is one thing, but leverage is the only way to make significant money. That’s why people who traded options or even crypto made massive amounts of money. 2% return on 10x leverage is 20% return at 1x risk.
- ChuckNorris89 4y ago>That’s why people who traded options or even crypto made massive amounts of money All the money "made" from crypto was at the expense of other players(I refuse to call them "investors") who were left holding the bags, or at the expense of the environment (most of the large scale mining operations was done in areas of the world with cheap and dirty energy like China, Russia, Iran, etc.)
- mise_en_place 4y agoI used those examples because they’re easy to understand. But how do you think angel investors like YC make money? An angel investment is also using leverage, banking on either future earnings or fundraising rounds to magnify your initial investment with a convertible note.
- nradov 4y agoThat's not how it works. Angel investors and VC firms almost always purchase equity. It's not really possible to purchase pre-IPO stock on margin (although some wealthy investors can take out loans collateralized by their other assets, and then use that cash to invest in other opportunities).
- mise_en_place 4y agoReally? I thought it’s better to defer valuation as late as possible, due to the regulatory burden and cost.
- nradov 4y agoThere's no regulatory burden. Pre-IPO equity funding rounds always involve some kind of valuation process and negotiation. The investor is purchasing a certain percentage of the company for a certain number of dollars.
- izzydata 4y agoThat's also how the stock market works. For someone to win someone else has to lose.
- ChuckNorris89 4y agoThat's not really the same. Investing in some companies adds value to society while "investing" (more like gambling) in crypto does not. For example, some tech and semiconductor companies, because the whole world benefits from better compute (research for vaccines can be done faster; imaging for medical equipment results in better diagnostics; cars, engines and batteries can be simulated better and made safer and more efficient etc.) The whole world benefits. "Investing" in crypto on the other hand, added zero value to society, or actually added negative value through the environmental damage being done.
- izzydata 4y agoI'm not really an advocate of proof of work crypto like bitcoin. Proof of stake crypto like Algorand have no environmental damage. There are however way more companies that have caused and will continue to cause environmental damage than bitcoin can ever do in a thousand years. That's not really what is at question here though. It's the concept of a pyramid scheme. The reason the stock market over long periods of time generally trends upwards is because new money keeps being added to it. It's as much of a pyramid as crypto is. That's just how the whole economy is though. Every generation so far has had more people than the last. It will be rather devastating to the stock market and economy whenever that stops being true.
- nradov 4y agoFalse. Over the long run, successful companies return capital to investors through dividends or stock buy-backs. No one else loses in those transactions. For example, if you purchase shares in an S&P 500 index fund then you'll receive approximately 1.5% dividend yield.
- izzydata 4y agoOver the long run dividends would be a very small percentage of the added value by new investment money coming in and increasing the share price.
- walkhour 4y agoCrypto is just being used as an example here, the point of the comment is not to debate whether people buying crypto or not are "legitimate" investors.
- AnimalMuppet 4y ago10x leverage is never 1x risk.